A situation for the arrangement of funds can arise at any point of time. The reason can either be buying a new house, a loan against property for any emergency, any education loan or a business loan. Once their is a strong reason to avail a loan, their are many lenders and brokers that can help you with the process. Mudra Home being a leading financial solution company for all, helps and guides you to process the financial needs with an ease.
After the application a stage comes – make or break. If the Bank/ NBFC is convinced with the credentials of an applicant, they proceed further with the process else the application gets rejected. The process of lending a loan is based on two aspects – profile and property assessment.
While availing a loan from any of the Bank/ NBFC, it is necessary to get a sanction letter. In the entire process of availing a loan – right from the application to the final disbursement. Sanction letter play an important role. This letter is however, not issued immediately after the application. Before sanctioning the letter, Banks/ NBFC checks the list of required documents, credit history as well as the repayment capacity of the applicant.
After the submission of the documents by the applicant, the bank/ NBFC conducts the process to verify the documents, income proofs and the other information provided by the borrower. Authenticity of all personal documents like identity, address proof, income proofs, employment details, bank and credit card details is also verified. The repayment capacity is based on the age, income, experience, qualification, employer, nature of business (in case of self – employed) etc. Based on these factors the maximum loan eligibility and the total loan amount is calculated and communicated to the applicant. As a Credit Score is a key to the progress of an application, it is advisable to solve any credit score or credit history related problems before applying for the loan. (Know more about credit score)
The loan eligibility of an applicant and the final loan amount are two different terms. Once the borrower knows its eligibility, he can decide on the loan amount.
A Bank/ NBFC can provide you with a conditional sanction letter if there are no issues with the income verification or the credit check. This means that the lender issues a formal letter of acceptance favouring the applicant of the loan. A Sanction letter is issued by the Bank/NBFC to the applicant of the loan. This letter is a proof that an applicant is eligible to a certain amount of loan from the lender. It also includes the Terms and Conditions from the lender.
The sanction letter states that the Bank/ NBFC is ready to proceed with the approval of a loan and include the following details:
- Total loan amount to be sanctioned
- Tenure for the loan repayment
- Applicable interest rates – fixed or floating Rate of Interest (ROI)
- Actual applied ROI
- Base Rate for interest calculation
- Applicable EMI or Pre-EMI amount
- Validity period of the sanction letter
- Terms and Conditions of the lender
It is to be noted that sanction letter does not mean a legal approval of the loan. Before disbursing the loan amount borrower has to submit the further documents and sign the loan agreement. The validity of the sanction letter varies from organization to organization but usually valid from 30 days to 60 days. The sanction letter is an important document in the loan process and it should be kept safely for the future reference.
If the loan is availed against a property (LAP) or to buy a new house, the borrower has to submit the legal documents of the property to the lender for the final disbursement. These documents can vary depending on the source of buying the property. If its a new property documents like sanction letter, encumbrance certificate, cost description and other related documents have to be submitted. If the property is in resale then he documents include the property chain, owner details, map and other related documents.
After the documents are received, the lender personally visits the place for the physical inspection of the property. This is done to verify the details like the quality of construction, area measurement and other relevant details. Authenticity of the property papers is also verified. The Bank/ NBFC will evaluate the costing and approve the loan accordingly.
Generally, the Value to Property for Home Loan (Loan to Value – LTV) is 80%, but may be according to the lender the property is estimated with a lesser value what the buyer has to pay. In such case, the Bank/ NBFC will lend as per the assessment of the property value. For example, if Mr. Karan is eligible for the loan of 80 Lakhs and may got the sanction letter for the same. Based on the eligibility if Karan wants to buy a property worth 1 Cr. But as per the Bank’s/ NBFC’s assessment the value of the property is 90 Lakhs and is ready to disburse Rs. 72,00,000 (80% of 90,00,000), even when the lender itself sanctioned the loan for 80Lakhs. Such example can be witnessed while buying properties in resale, so its better for the applicant to be ready to face such scenarios also.